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Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions

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Listed:
  • Keloharju, Matti
  • Nyborg, Kjell G.
  • Rydqvist, Kristian

Abstract

We contribute to the debate on the optimal design of multiunit auctions by developing and testing robust implications of the leading theory of uniform price auctions on the bid distributions submitted by individual bidders. The theory, which emphasizes market power, has little support in a dataset of Finnish Treasury auctions. A reason may be that the Treasury acts strategically by determining supply after observing bids, apparently taking into account that the auctions are part of a repeated game between the Treasury and the primary dealers. Bidder behavior and underpricing are affected by the volatility of bond returns in a way that suggests bidders adjust for the winner’s curse.

Suggested Citation

  • Keloharju, Matti & Nyborg, Kjell G. & Rydqvist, Kristian, 2004. "Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions," University of California at Los Angeles, Anderson Graduate School of Management qt6v17p79w, Anderson Graduate School of Management, UCLA.
  • Handle: RePEc:cdl:anderf:qt6v17p79w
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    More about this item

    Keywords

    Multiunit auctions; uniform price auctions; treasury auctions; market power; JEL Classification Numbers: D44; G10;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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